Crude Oil Futures Gain on Speculation Losses Excessive

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Crude oil surged the most in more than 2 1/2 years after falling to the lowest since 2009.

Oil futures rose 5.6 percent in New York and 4.5 percent in London. Options expiration bolstered activity, while technical indicators signaled that crude was due for a rebound. Futures have dropped the past six months, the longest stretch in six years. During this period West Texas Intermediate posted five weekly gains before resuming its slide.

“We’ve fallen so far so fast that some folks think it’s time to call a bottom,” Michael Wittner, head of oil research at Societe Generale in New York, said by phone. “It’s way premature to say the bear market is over. We’ve been stair-stepping down all along and at several stages the market has had to take a breather.”

Oil slumped almost 50 percent last year, the most since 2008, as the Organization of Petroleum Exporting Countries resisted calls to cut output even as the U.S. pumped at the fastest rate in more than three decades. WTI briefly traded higher than Brent yesterday for the first time since July 2013, a signal that Saudi Arabia’s strategy of curbing shale output growth is working, according to Societe Generale.

WTI for February delivery rose $2.59 to settle at $48.48 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 76 percent above the 100-day average at 3:56 p.m. The contract slipped to $45.89 yesterday, the lowest close since April 2009.

Brent Premium

Brent for February settlement increased $2.10, or 4.5 percent, to end the session at $48.69 a barrel on the London-based ICE Futures Europe exchange. Volume for all futures traded was 69 percent higher than the 100-day average. The February contract, which expires tomorrow, closed at a 21 cent premium to WTI, the lowest since July 2013.

The market was “overdue” for a correction,’’ said Jeff Grossman, president of New York-based BRG Brokerage. “It’s been down, down, down. It’s lifting its head.”

The 14-day relative strength index for WTI stood at 30.1214 at 3:15 p.m. in New York, according to data compiled by Bloomberg. It was the first time the RSI has been above 30 since Dec. 24. Investors typically start buying contracts when the reading is below 30. The 14-day RSI for Brent was 22.3992.

“A lot of what we’re seeing here is technical,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “After WTI was unable to break below $44 yesterday, that’s become an area of some support.”

Options Volatility

February options expired today, adding to volatility, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. The $47 calls, bets that prices will rise above the level, jumped to $1.49 a barrel from 26 cents with volume of 5,533 lots. The $48 calls climbed to 70 cents from 10 cents.

“This may not be the end of the move lower,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “We’ve had several periods, some lasting a couple weeks, when prices appeared to recover only to see them break lower again.”

The market discounted an Energy Information Administration report that showed U.S. crude and fuel stockpiles increased last week.

Crude Supplies

U.S. crude supplies rose 5.39 million barrels to 387.8 million in the week ended Jan. 9, according to the EIA. Crude production climbed 60,000 barrels a day to 9.19 million in the seven days ended Jan. 9, the highest in weekly estimates that started in January 1983, according to EIA data. Crude imports rose 636,000 barrels a day to 7.49 million.

Refineries operated at 91 percent of their capacity, down from 93.9 percent the previous week, according to EIA, the Energy Department’s statistical arm.

Inventories of gasoline and distillate fuel, the category that includes diesel and heating oil, also gained. Gasoline stockpiles rose 3.17 million barrels to 240.3 million, the highest since February 2011. Supplies of distillate fuel climbed 2.93 million to 139.9 million, the most since February 2014.

Gasoline futures jumped 6.5 percent to $1.3507 a gallon. Ultra low sulfur diesel gained 1.4 percent to $1.6552.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 1.6 cents to $2.101 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group. Pump prices were around $2.05 a gallon when oil was last below $50 a barrel.

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